Don't leave the poor behind

PUBLISHED : Monday, 15 November, 2004, 12:00am
UPDATED : Monday, 15 November, 2004, 12:00am

Budget time is on the horizon and, with it, all kinds of pleadings. But before we start asking who should pay more tax in order to bridge the deficit, let us stop pretending we do not have the data and acknowledge the appalling degree of income inequality in Hong Kong. This should have some bearing on the level of expenditure, and the financing of it.

The latest government information (for the first quarter of this year) on household income distribution shows that the median income - including Chinese New Year bonus - was just $15,800 a month. Worse, some 20 per cent of households survive on less than half the median income, and 9 per cent on less than $4,000 per month. Although some may be one-person households, the overall picture is a disgrace to a society that claims to be both rich and to offer opportunities for all. The gap is vastly greater than anywhere in developed East Asia, or even the US. It also continues to widen.

Granted, low-cost housing and health services offset some of the deficiencies. But against the positive impact of these government-provided benefits is the high cost of many goods and services. Instead of hanging their heads in shame, senior officials paid vastly more than their counterparts in rich countries elsewhere bleat about the welfarist 'threat' to the economy.

Any discussion of spending should start with the fact that many of the poorest households consist of the elderly and single-parent families, who are necessarily partly dependent on the public purse. Their number will continue to grow. Discussion should also take account of the large numbers of people being paid minimal amounts for long hours of sweeping and cleaning.

I am not suggesting that a minimum wage is necessarily the answer. But it is something which exists in most developed economies. A minimum wage has the laudable objective of putting a floor under the standard of living of the least skilled. And there is scant evidence that, if sensibly set, it does any damage to the overall economy. However, Democratic Party support for such a measure would make more sense if accompanied by realistic proposals for the Budget.

The suggestion backed by both the Liberal and Democratic parties that the government should abandon its already announced income tax rise was irresponsible. It is even more so, given that the Democrats and the Democratic Alliance for Betterment of Hong Kong both appear to oppose a goods and services tax. The fact is that, for years, the upper and middle income groups have been given ever-increasing concessions. The simplest way for the government to improve its revenue is to lower the income tax threshold, so that median income earners pay some tax, and make all the tax bands narrower, so that the 15 per cent maximum is reached at a much lower income level. Better than a selective goods and services tax would be an increase in property rates, which are recurrent, equally impact businesses and households, and are a rough proxy for household income.

Finally, if it wants to be taken seriously, the government must stop using the movement in the capital value of its fiscal reserves as a cash machine. In recent years, it has included some capital gains in its income from the exchange fund. It will be in quite a fix if it has to report negative income because asset prices have fallen. As long as it operates on a cash accounting basis, it should only include in its recurrent income its share in the exchange fund's dividend and interest income. If it wants to increase its income from the exchange fund, it should require the fund to pay a fixed percentage of all its net income to the government.

But do not count on this government to do so. It is three years since the publication of a detailed official report on taxation options. Nothing has been done. So much for 'executive-led government'. So here is the financial secretary's chance to be bold in tackling the deficit, and fair by doing nothing to widen the income gap.

Philip Bowring is a Hong Kong-based journalist and commentator